Analysis Law and Policy

Is it 1970? CARD Act Regulation Demonstrates Credit Challenges Remain for Women

Sheila Bapat

Last week, the Consumer Finance Protection Bureau reversed a CARD Act regulation that prevented some stay-at-home mothers from obtaining credit cards on their own.

If Bella Abzug were still alive, she would probably give us mixed reviews on women’s economic progress. Abzug, one of the most vociferous women members of Congress during the seventies, fought hard for many of the economic rights a woman has today, including the right to obtain a credit card without her husband’s signature. The Equal Credit Opportunity Act helped ensure that any person who applies for a credit card could not be rejected on the basis of her sex, marital status, race, or religion. Now, women can thankfully access credit on their own.

But credit challenges for women still exist, as evidenced by the Credit Card Accountability, Responsibility, and Disclosure Act (the CARD Act) of 2009. For the past year and a half there has been a quiet CARD Act regulation in place—a regulation that was happily reversed last week—that inhibited many stay-at-home mothers from qualifying for credit cards on their own. The CARD Act “requires that card issuers evaluate a consumer’s ability to make the necessary payments before opening a new credit card account.” A Federal Reserve Board (FRB) regulation for this law stated that a card issuer generally may only consider the individual card applicant’s income or assets—not her household income. As noted in the FRB’s final rule, the rule “requires that a card issuer consider a consumer’s independent ability to make the required payments on a credit card account, regardless of the consumer’s age.”

As a result of the policy, some stay-at-home parents earning no income—most of whom are women—faced challenges obtaining credit cards. According to the Consumer Finance Protection Bureau (CFPB):

Data made available suggest that some otherwise credit-worthy individuals have been declined for credit card accounts under the current regulation, even though they have the ability to make the required payments. Discussions with industry sources indicate that a significant number of these individuals may be stay-at-home spouses or partners with access to income from an employed spouse or partner.

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Luckily, the CFPB—the agency set up in 2011 by friend-of-consumers and Massachusetts Senate Candidate Elizabeth Warren—changed the credit card qualification rule this week. The new rule should enable stay-at-home parents to qualify for credit cards on their own without hassle.

Why did the original (FRB) regulation come about in the first place? When it was originally proposed in November 2010, public comment and discussion about this rule included concern from individuals about the fact that the rule could restrict stay-at-home spouses or parents:

…Commenters strongly objected to the application of these limitations to consumers who are 21 or older. They argued that this aspect of the proposed rule was inconsistent with the Credit Card Act and the Board’s Regulation B and would reduce access to credit, particularly for married women who do not work outside the home.

This concern did not drive the ultimate FRB policy. Supporters of the FRB policy believed that considering only the credit card applicant’s income could help protect consumers from having to pay excessive fees required by credit card issuers, as well as prevent them from taking on more debt than they could manage on their own. One objective of the CARD Act of 2009 is to protect consumers from debt they can’t manage: in light of the mortgage crisis, it does make sense for the federal government to help people avoid crushing debt.

But the FRB’s considerations also reveal some troubling justifications that frankly reek of the mid-century sexism that Abzug battled. The FRB actually notes that people without their own income could still obtain credit through relying on their spouses:

a consumer who does not have sufficient income to open a credit card account independently can open an account by applying jointly with a spouse who has sufficient income. The Board understands that a joint application could be inconvenient or impracticable in certain circumstances, such as when a consumer’s spouse is not available to apply in a retail setting. However, the Board does not believe that these concerns warrant permitting issuers to extend credit based on the income of persons who are not liable on the account.

What about someone who may not be working but is also trying to escape an abusive marriage? Requiring a stay-at-home mother to tie her credit to her spouse could be far more dangerous than the FRB understood.

In practice, the policy was indeed found to be too restrictive, resulting in a petition as well as extensive feedback to the CFPB that tens of thousands of people were being denied credit even though they were credit-worthy and they lived in households that could absorb the debt.

This policy is not the only source of challenges women in the United States still face in obtaining credit. According to the Federal Trade Commission’s Bureau of Consumer Protection, the practice of changing one’s name after marriage—something many, many women still choose to do—can result in lost credit histories, or “creditors reporting accounts shared by a married couple in the husband’s name only.”

In sum, Bella: we still have a ways to go.

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